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Ratings agencies eye ‘rising risks’ in Georgia

By Christina Tashkevich
Thursday, May 8
International rating agencies warned this week that troublesome Georgian-Russian relations could have long-term consequences for Georgian economic growth.

Citing deteriorating Georgian-Russian relation and “high and rising political and security risks,” rating agency Standard & Poor’s downgraded its long-term rating outlook from positive to stable on May 5.

"The outlook revision was based on further deterioration of relations with Russia as militarization of the separatist regions increases," said Standard & Poor's credit analyst Trevor Cullinan.

The agency said the country’s current ratings would remain unchanged.

Standard & Poor’s said Russia’s decision to increase its peacekeeping contingent in Abkhazia would complicate Georgia's bid for NATO membership and harm its fiscal performance and economic growth.

“[Russia’s] move is also likely to pressure Georgia's fiscal performance this year, potentially interrupting financial inflows to Georgia's expanding economy,” the agency noted.

Another rating agency, Fitch, said it is not adjusting its assessment of a stable outlook for Georgia.

The head of emerging Europe sovereigns at Fitch, Edward Parker, told the paper that while Georgia’s sovereign rating is supported by a high growth rate, potential political instability places constraints on the rating.

Parker said tensions between Russia and Georgia—and the risk of escalating conflict in breakaway Abkhazia and South Ossetia—serve as “a long standing risk factor” for Georgia's rating.

“The recent increasingly bellicose rhetoric and build up of military forces in and around Abkhazia is a rising source of concern. If there is an escalation of tensions into a material military conflict that would clearly be a serious negative event for Georgia and would precipitate negative rating action by Fitch,” Parker said.

Any armed confrontation, the analyst said, would hit the Georgian state budget and investor confidence, in turn jeopardizing Georgia’s inflow of foreign capital and rapid economic growth.